Lithium has gained much popularity in the past few years with the emergence of smartphones, electric vehicles, and Li-ion batteries. As a result, the lithium or lithium-based products market is consistently in the gaining trend and both the supply and demand side of this market are keen to become part of the trend and gain some market share.
But the big question is, what are its long-term and short-term investment prospects? We will look at this in detail in this article. To get started, you can create a trading account on platforms like Etoro and familiarize yourself with the basic concepts of investing.
The Lightest of Them All
Before we start on whether to invest in lithium or not, let’s see what lithium is and why it is so in demand right now. Lithium is a type of earth mineral present in a limited geographical area. Most of the lithium comes from Chile and Australia.
It is lighter than other minerals and has better energy generation qualities. That’s why the most prominent use of lithium is in lithium-ion batteries. However, as this mineral is highly heated sensitive, proper utilization and maintenance are required.
Now that we know what lithium is let’s discuss what things to consider before investing in lithium.
Lithium Industry
Although lithium is a metal, you cannot acquire it as a commodity investment such as gold. That being said, there are two possibilities for an investor to participate in the market. Either invest in lithium mining companies or put some money into lithium-based products. The dynamics of both product lines are different. According to the experts of online broker IG https://brokerschart.it/migliori-brokers/ig, investors in the lithium mining companies are expecting a whooping gain of 250%.
Due to a lack of market trust, the investors had chosen not to put their money in the lithium mining business in earlier years. That resulted in a limited exploration of lithium for mining purposes. Further, it takes around 6 to 7 years to establish a mining site from scratch, creating a big gap between the forces of demand and supply. However, as the demand for li-ion batteries increased, businessmen and investors left their fancy offices and camped near the lithium ores to earn mining money. With new investors in line, the demand for lithium is expected to grow from 500,000 metric tons in 2021 to 3,500,000 metric tons by 2030.
More than 75% of lithium is used in lithium batteries. With the increasing demand of electric vehicles, auto manufacturers switched to lithium-based batteries for their vehicles due to their energy efficiency, quick charge, and lightweight features of lithium.
With more environmental sustainability initiatives taken by countries, the EV market has seen tremendous growth over the years. As a result, EVs’ prevailing 20% market share is expected to increase by more than 50% by 2025-2030.
Revenue Prospects
The present scenario with lithium supply is still limited due to the long establishing time for mining and limited areas to extract. On the other hand, the demand for lithium is on an upward trajectory. This imbalance created a high earning potential for mining businesses and li-ion battery distributors.
Although it took a lot of time to establish the mining setup, the figures of $3 Billion market size by 2020 show this industry’s earning potential. Further, market experts believe this industry is expected to grow in annual revenues by 7% by 2030.
The same is the case with Li-ion batteries. As the demand for lithium for EV batteries has considerably increased by more than 75% in the present time, the supply is limited. The results are evident with average revenue generated from the sale of batteries at more than 22% of its cost. Hence creating a favorable bottom-line result for the investors.
CAPEX Perspective
As lithium is a non-commodity traded asset, the actual return on investment will only happen when the lithium is mined, refined, and sold, which in most cases takes more than six years. Further, lithium mining is a huge capital-intensive business. Therefore, a lot of investment is required at the beginning with no or minimum short-term return. This might create reluctance among investors. Therefore, investment at the start of the mining operations is suitable for long-term investors. If you want to know more about investment prospects in lithium, set up an instant online account on a registered broker Plus500.
For short-term investors, getting their market share in li-ion batteries is more suitable. This industry is booming with increased revenue, and the sales-cost parity generates huge returns.
Potential issues
Although lithium is presently the best solution for EV batteries, industry experts are divided on this perspective. The first issue with lithium is its flammable natural property which makes it not so suitable for EV batteries on a global scale. The highly flammable nature creates a risk of accidents if the battery heats up. Research is underway to improve the battery technologies which results in minimum lithium need.
Secondly, lithium mining is unsuitable for the environment and creates a lot of carbon emissions. Moreover, the ecological damage to the lithium mines’ surrounding areas has been witnessed earlier and is still an issue. However, companies a looking for sustainable ways of mining.
Final Verdict
In the end, is it good to invest in lithium or not? The answer is that both lithium mining and lithium based products have huge earning potential, and despite the associated issues, these industries will give good returns on investment.
Furthermore, it is always recommended to do thorough research on this stock and consult with your broker to get the best bucket of stocks that will generate huge returns for you.
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